11/19/2011

Greece submits proposal to avert bankruptcy

ATHENS – Greece’s new government took a first step yesterday towards meeting the terms of an international bailout needed to avoid bankruptcy, submitting a budget Bill that foresees no new austerity measures next year as long as reforms are enacted.

The draft predicted that Greece would face a fifth year of recession but said a plan to convince private creditors to take a 50 per cent loss on bond holdings could cut the fiscal deficit by more than a third.

Economists said that years of swingeing tax hikes, public salary and pension cuts and other belt-tightening measures could send the economy deeper into contraction and the draft spending plan’s forecasts were probably too optimistic.

The budget draft forecasts that the €220 billion economy will shrink 2.8 per cent in 2012, versus 5.5 per cent this year.

“The feasibility of next year’s fiscal deficit depends highly on the depth and severity of the recession,” said Diego Iscaro, an economist at IHS Global Insight.

“Under current circumstances, we expect the economy to contract at a sharper rate in 2012 and therefore we believe that the target will be difficult to achieve.”

Still more important, analysts said, was a rift between parties in technocrat prime minister Lucas Papademos’s unity coalition caused by jockeying for position by the conservative New Democracy party ahead of an election slated for February 19th.

Mr Papademos must win pledges from the rival parties that they will do what it takes to meet bailout terms or Greece’s lenders will withhold an €8 billion aid tranche. Representatives from the International Monetary Fund, the European Union and European Central Bank were due to meet Greek finance minister Evangelos Venizelos and Mr Papademos later yesterday and the heads of the coalition parties today.

Tensions have risen between coalition partners, the Socialists of former prime minister George Papandreou, and New Democracy, as the latter’s leader, Antonis Samaras, has refused to sign the commitment sought by EU and IMF authorities.

Underscoring the pressure on Athens, the Dutch finance minister said that the Greek parties had “to make a clear and unequivocal choice in writing” by signing a pledge.

“Are they with us, or not? We don’t have the luxury of patience any longer,” said Jan Kees de Jager .

Mr Samaras has said that he wanted to win an outright majority in the snap election to reverse the austerity measures with which he disagrees.